Student loan forgiveness isn’t dead yet. Biden’s SAVE Plan Will Help: NPR
Graduates attend the Tennessee State University commencement ceremony in Nashville on May 7, 2022. Under a new repayment plan, millions of student loan borrowers will see their monthly repayment amount cut in half or more.
Jason Davis/Getty Images
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Jason Davis/Getty Images
Graduates attend the Tennessee State University commencement ceremony in Nashville on May 7, 2022. Under a new repayment plan, millions of student loan borrowers will see their monthly repayment amount cut in half or more.
Jason Davis/Getty Images
The Supreme Court may have struck down President Biden’s plan for sweeping student loan forgiveness, but another plan that could gradually achieve similar results is in the works. In fact, millions of borrowers can start taking advantage of them as early as the fall, when they’re expected to start making monthly loan payments after a three-year hiatus.
NowThis forgiveness is not easy. It won’t happen all of a sudden, in one go. Instead, it will slowly come through a complex new repayment plan — called the SAVE plan, for Saving on a Valuable Education — that will save borrowers thousands of dollars by keeping their monthly payments low (as low as $0) and also keeping interest from exploding. they have to.
« [It] it has the potential to massively change student loan repayment in our country as we know it,” says Dominique Baker, associate professor of education policy at Southern Methodist University.
SAVE is a new form of income-based repayment plan that the Department of Education says will phase out the current Revised Pay As You Earn (REPAYE) plan.
If that doesn’t sound like loan forgiveness, take this:
The department says that under the old plan, borrowers repaid $10,956 for every $10,000 they borrowed. Under the new plan, they would pay back just $6,121.
« This is a great new loan forgiveness policy, especially for college students, » says Jason Delisle, who studies higher education at Urban Institute.
In a January review of the SAVE planDelisle and his colleagues found that for those with bachelor’s degrees, « the share that fully pays off their loans would drop from 59 percent today [income-driven repayment] at 22 percent. »
Based on current estimates, SAVE could end up costing the government everywhere 138 billion dollars (department estimate) a 230 billion dollars (nonpartisan estimate by the Congressional Budget Office) a 361 billion dollars (an analysis of Penn Wharton’s budget model) over the next 10 years. By comparison, the pardon program just scuttled by the Supreme Court was expected to have a one-time cost of about $400 billion.
Here’s a handy guide to what that means for borrowers.
What is the SAVE plan and how does it work?
Like current income-based plans, SAVE bases monthly payments on the borrower’s income and family size. But in many ways, SAVE’s terms will be much more generous.
First, about a million more borrowers will qualify for monthly payments of $0. How?
The repayment plans include a « minimum » income, Baker says, below which « the government says, ‘Oh, you don’t have to make any payments. We think that’s the money you need to live – for food, for gas, for things of that nature.' » This income is essentially exempt.
The SAVE plan raises this bar, protecting a greater portion of a borrower’s income from the math of the monthly payment, to 225% of the federal poverty guideline, from the current 150%.
According to a Department of Education fact sheet« This change means that an individual borrower making less than $32,805 a year ($67,500 for a family of four) will not have to make payments. »
Second, as long as borrowers make their monthly payments, the new SAVE plan also prevents interest from accumulating. With previous plans, borrowers with low or $0 payments, too low to cover monthly interest, saw interest accrue. Now, that won’t happen.
Third, borrowers with college loans will see their monthly payments cut in half due to a large change in what’s called the appraisal rate. Simply put, the Department of Education will base payments on 5% of borrowers’ residual income, not the current 10%.
And fourth, SAVE includes a more generous forgiveness mechanism. In the past, college borrowers could have their debts forgiven after 20 years of payments. Under SAVE, those who borrow $12,000 or less can write off their debts after just 10 years of payments.
Also, a borrower $13,000 in debt wouldn’t have to wait 20 years for a forgiveness, just 11. Every $1,000 over the $12,000 limit simply adds an extra year of required payments.
Borrowers with much higher college debt may still qualify for forgiveness after 20 years of payments, while borrowers with graduate school debt may qualify for the plan’s more generous monthly terms but would have to wait 25 years for forgiveness.
The first two of these provisions (payments of $0 and no interest) will go into effect shortly. The last two will come into force in July 2024.
Who qualifies for SAVE?
SAVE is for student borrowers with federally held loans, including all direct subsidized, unsubsidized and consolidated loans, as well as PLUS graduate loans.
Those with Federal Family Education Loans (FFEL) or Perkins Loans held by a commercial lender would need to consolidate into a direct loan to qualify.
Parents who have taken out a federal loan to help their children pay for college (known as Parent PLUS loans) are not eligible for SAVE.
Prospective borrowers, however, will be eligible for these benefits. Unlike the pardon plan that the court overturned, SAVE is not a one-time move but a lifelong program.
But just as with the now-defunct Forgiveness Plan, borrowers won’t receive SAVE benefits unless they apply. (Read on for some helpful tips on the one below.)
How and when can I apply?
After a three-year break extension, student loan payments will resume in October, with interest starting to accrue again in September.
Even without SAVE, returning to repayment is a huge undertaking for the Department of Education and student loan servicers and could get complicated. In January, NPR reported serious concerns about funding gaps within Federal Student Aid (FSA), the Department of Education office charged with managing the government’s student loan portfolio.
The Biden administration has not yet released the formal application for SAVE, saying the Education Department will notify borrowers when it is available later this summer.
But borrowers can apply now for REPAYE, the plan that SAVE will replace. Those on REPAYE will automatically be moved to SAVE when the changes go into effect this fall.
You can check if you’re on the REPAYE plan by logging into StudentAid.gov and clicking the « My Aid » link in the « My Info » sidebar.
The department suggests doing so now, before payments resume, noting that it may take « a few weeks » to process your request, given that income and family size will need to be verified.
Also, given the funding issues at the FSA, borrowers who wait until September or October to call their service provider may find themselves waiting for a lot of music.
The department says it’s redesigning applications for all income-based repayment plans to ultimately take « 10 minutes or less » to complete.
As part of that redesign, borrowers will have the option to opt for an IRS supplement that allows the Department of Education access to their tax returns. This step allows the department to automatically recertify borrowers’ enrollments each year so they don’t have to keep applying and updating.
Could SAVE be ended by another legal challenge?
Everything is possible.
« The White House itself is suggesting that participants in SAVE … will pay back about $0.71 for every dollar borrowed. It doesn’t sound like a loan. It looks almost like a grant program, » says Nat Malkus, who studies more in higher education at the American Enterprise Institute.
Malkus believes the SAVE plan will almost certainly face legal challenges and the courts will again need to answer the question: » [the SAVE plan] really turn the student loan system into something Congress would never authorize? »
But the certainty of a legal dispute does not make the project’s downfall certain. In fact, several experts tell NPR that SAVE isn’t as legally vulnerable as the debt relief plan that was just canceled.
The Supreme Court decision hinged on an issue involving the HEROES Act, a 9/11-era policy that allows the education secretary to « ease the hardship » of federal student loan debt during a national crisis. The court ultimately found that attempting to use that law to justify debt relief was too much of a step by the secretary.
The SAVE plan, on the other hand, is based on the Higher Education Act. This law has allowed the department to create and modify income-based repayment plans for years, without legal interference.
« Congress has clearly given the secretary of education the authority to design income-based repayment plans, » says Delisle of the Urban Institute. « So it’s legal. »
Student loan forgiveness isn’t dead yet. Biden’s SAVE Plan Will Help: NPR
Graduates attend the Tennessee State University commencement ceremony in Nashville on May 7, 2022. Under a new repayment plan, millions of student loan borrowers will see their monthly repayment amount cut in half or more.
Jason Davis/Getty Images
hide caption
toggle caption on/off
Jason Davis/Getty Images
Graduates attend the Tennessee State University commencement ceremony in Nashville on May 7, 2022. Under a new repayment plan, millions of student loan borrowers will see their monthly repayment amount cut in half or more.
Jason Davis/Getty Images
The Supreme Court may have struck down President Biden’s plan for sweeping student loan forgiveness, but another plan that could gradually achieve similar results is in the works. In fact, millions of borrowers can start taking advantage of them as early as the fall, when they’re expected to start making monthly loan payments after a three-year hiatus.
NowThis forgiveness is not easy. It won’t happen all of a sudden, in one go. Instead, it will slowly come through a complex new repayment plan — called the SAVE plan, for Saving on a Valuable Education — that will save borrowers thousands of dollars by keeping their monthly payments low (as low as $0) and also keeping interest from exploding. they have to.
« [It] it has the potential to massively change student loan repayment in our country as we know it,” says Dominique Baker, associate professor of education policy at Southern Methodist University.
SAVE is a new form of income-based repayment plan that the Department of Education says will phase out the current Revised Pay As You Earn (REPAYE) plan.
If that doesn’t sound like loan forgiveness, take this:
The department says that under the old plan, borrowers repaid $10,956 for every $10,000 they borrowed. Under the new plan, they would pay back just $6,121.
« This is a great new loan forgiveness policy, especially for college students, » says Jason Delisle, who studies higher education at Urban Institute.
In a January review of the SAVE planDelisle and his colleagues found that for those with bachelor’s degrees, « the share that fully pays off their loans would drop from 59 percent today [income-driven repayment] at 22 percent. »
Based on current estimates, SAVE could end up costing the government everywhere 138 billion dollars (department estimate) a 230 billion dollars (nonpartisan estimate by the Congressional Budget Office) a 361 billion dollars (an analysis of Penn Wharton’s budget model) over the next 10 years. By comparison, the pardon program just scuttled by the Supreme Court was expected to have a one-time cost of about $400 billion.
Here’s a handy guide to what that means for borrowers.
What is the SAVE plan and how does it work?
Like current income-based plans, SAVE bases monthly payments on the borrower’s income and family size. But in many ways, SAVE’s terms will be much more generous.
First, about a million more borrowers will qualify for monthly payments of $0. How?
The repayment plans include a « minimum » income, Baker says, below which « the government says, ‘Oh, you don’t have to make any payments. We think that’s the money you need to live – for food, for gas, for things of that nature.' » This income is essentially exempt.
The SAVE plan raises this bar, protecting a greater portion of a borrower’s income from the math of the monthly payment, to 225% of the federal poverty guideline, from the current 150%.
According to a Department of Education fact sheet« This change means that an individual borrower making less than $32,805 a year ($67,500 for a family of four) will not have to make payments. »
Second, as long as borrowers make their monthly payments, the new SAVE plan also prevents interest from accumulating. With previous plans, borrowers with low or $0 payments, too low to cover monthly interest, saw interest accrue. Now, that won’t happen.
Third, borrowers with college loans will see their monthly payments cut in half due to a large change in what’s called the appraisal rate. Simply put, the Department of Education will base payments on 5% of borrowers’ residual income, not the current 10%.
And fourth, SAVE includes a more generous forgiveness mechanism. In the past, college borrowers could have their debts forgiven after 20 years of payments. Under SAVE, those who borrow $12,000 or less can write off their debts after just 10 years of payments.
Also, a borrower $13,000 in debt wouldn’t have to wait 20 years for a forgiveness, just 11. Every $1,000 over the $12,000 limit simply adds an extra year of required payments.
Borrowers with much higher college debt may still qualify for forgiveness after 20 years of payments, while borrowers with graduate school debt may qualify for the plan’s more generous monthly terms but would have to wait 25 years for forgiveness.
The first two of these provisions (payments of $0 and no interest) will go into effect shortly. The last two will come into force in July 2024.
Who qualifies for SAVE?
SAVE is for student borrowers with federally held loans, including all direct subsidized, unsubsidized and consolidated loans, as well as PLUS graduate loans.
Those with Federal Family Education Loans (FFEL) or Perkins Loans held by a commercial lender would need to consolidate into a direct loan to qualify.
Parents who have taken out a federal loan to help their children pay for college (known as Parent PLUS loans) are not eligible for SAVE.
Prospective borrowers, however, will be eligible for these benefits. Unlike the pardon plan that the court overturned, SAVE is not a one-time move but a lifelong program.
But just as with the now-defunct Forgiveness Plan, borrowers won’t receive SAVE benefits unless they apply. (Read on for some helpful tips on the one below.)
How and when can I apply?
After a three-year break extension, student loan payments will resume in October, with interest starting to accrue again in September.
Even without SAVE, returning to repayment is a huge undertaking for the Department of Education and student loan servicers and could get complicated. In January, NPR reported serious concerns about funding gaps within Federal Student Aid (FSA), the Department of Education office charged with managing the government’s student loan portfolio.
The Biden administration has not yet released the formal application for SAVE, saying the Education Department will notify borrowers when it is available later this summer.
But borrowers can apply now for REPAYE, the plan that SAVE will replace. Those on REPAYE will automatically be moved to SAVE when the changes go into effect this fall.
You can check if you’re on the REPAYE plan by logging into StudentAid.gov and clicking the « My Aid » link in the « My Info » sidebar.
The department suggests doing so now, before payments resume, noting that it may take « a few weeks » to process your request, given that income and family size will need to be verified.
Also, given the funding issues at the FSA, borrowers who wait until September or October to call their service provider may find themselves waiting for a lot of music.
The department says it’s redesigning applications for all income-based repayment plans to ultimately take « 10 minutes or less » to complete.
As part of that redesign, borrowers will have the option to opt for an IRS supplement that allows the Department of Education access to their tax returns. This step allows the department to automatically recertify borrowers’ enrollments each year so they don’t have to keep applying and updating.
Could SAVE be ended by another legal challenge?
Everything is possible.
« The White House itself is suggesting that participants in SAVE … will pay back about $0.71 for every dollar borrowed. It doesn’t sound like a loan. It looks almost like a grant program, » says Nat Malkus, who studies more in higher education at the American Enterprise Institute.
Malkus believes the SAVE plan will almost certainly face legal challenges and the courts will again need to answer the question: » [the SAVE plan] really turn the student loan system into something Congress would never authorize? »
But the certainty of a legal dispute does not make the project’s downfall certain. In fact, several experts tell NPR that SAVE isn’t as legally vulnerable as the debt relief plan that was just canceled.
The Supreme Court decision hinged on an issue involving the HEROES Act, a 9/11-era policy that allows the education secretary to « ease the hardship » of federal student loan debt during a national crisis. The court ultimately found that attempting to use that law to justify debt relief was too much of a step by the secretary.
The SAVE plan, on the other hand, is based on the Higher Education Act. This law has allowed the department to create and modify income-based repayment plans for years, without legal interference.
« Congress has clearly given the secretary of education the authority to design income-based repayment plans, » says Delisle of the Urban Institute. « So it’s legal. »
